After two and a half years of failures nearly every Friday, and a pile of about 350 collapsed banks, one former management team of a shuttered thrift has decided to fight back.
The former United Western Bank, a $2 billion-asset Denver thrift, along with its holding company and key principals, became the first plaintiffs during the current financial crisis to mount a court challenge to a failure. In a lawsuit filed late last week, they claim that the Office of Thrift Supervision and Federal Deposit Insurance Corp. undermined their recovery plan and locked their doors prematurely.
Though some other failed-bank managers have objected to their institution's collapse, arguing that it was unnecessary, United Western executives are suing in an attempt to force the thrift's reopening — an attempt that has not been made for more than a decade.
The plaintiffs' attorney said the suit is a line in the sand against regulators who have become overzealous in the wake of the crisis and are closing banks too hastily.
"We're in a period of time when the regulators are sometimes moving too quickly to seize banks, and once they decide that that's what they want to do, they're working to create a record to close banks rather than working with community banks to try to enable them to succeed," said Andrew Sandler, a partner in BuckleySandler LLP who represents the former thrift's management. "This is an extreme case of that, but it's not the only case."
The lawsuit, Sandler added, "may be helpful in creating a course correction."
Filed in U.S. District Court in Washington, D.C., the suit essentially seeks to nullify the failure, transferring control of the institution from the FDIC back to the former managers. (Upon seizing United Western on Jan. 21, the FDIC sold its assets and deposits to First Citizens Bank in Raleigh, N.C.)
The suit alleges that United Western was "economically viable" at the time of its closure and that the two agencies did not appear sincere about engaging with the management team on a recapitalization plan. The suit says the thrift had lined up strong interest from investors, promising $200 million in capital, which was needed to help United Western recover from significant writedowns related to its portfolio of mortgage-backed securities.
The FDIC declined to comment on the case. An OTS spokesman said, "The OTS had solid grounds for closing United Western. We will vigorously defend the lawsuit."
